What Should Your Margins Be?
By Dennis Fredrickson, CPA
A client recently called me with a question: “What should my margins be?” That’s a great question. Frequently, many small business owners don’t know how their business compares to their industry or competitors.
There are resources available to help with this. They can provide a wealth of information regarding financial ratios. You can go to resource desk at a larger library and look for the following periodicals (there are others available, this is just a sample):
- RMA Annual Statement Studies (Risk Management Association)
- Industry Norms and Key Business Ratios (Dun & Bradstreet)
- Almanac of Business and Industrial Financial Ratios (CCH)
- Standard & Poor’s NetAdvantage
- For Nonprofits, use GuideStar.com. Download 990s from Nonprofits similar in size, scope and mission
- Trade associations
These sources can provide general guidelines for comparative financial ratios that you can use to benchmark your business within your industry.
Use caution, however, because businesses in these surveys may have material differences in revenue and cost structures. Additionally, firms can also use different accounting procedures. Or customer mix may be different.
If you would like to find out more or learn how we can make your business more efficient, please call Hallmark CPA Group, LLC at 813-283-0642.